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Relationship between efficiency and predictability in stock price change |
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| Authors: | Cheoljun Eom Gabjin Oh |
| Institution: | a Division of Business Administration, Pusan National University, Busan 609-735, Republic of Korea b Pohang Mathematics Institute, Pohang University of Science and Technology, Pohang 790-784, Republic of Korea c Center for Polymer Studies and Department of Physics, Boston University, Boston, MA 02215, USA |
| Abstract: | In this study, we evaluate the relationship between efficiency and predictability in the stock market. The efficiency, which is the issue addressed by the weak-form efficient market hypothesis, is calculated using the Hurst exponent and the approximate entropy (ApEn). The predictability corresponds to the hit-rate; this is the rate of consistency between the direction of the actual price change and that of the predicted price change, as calculated via the nearest neighbor prediction method. We determine that the Hurst exponent and the ApEn value are negatively correlated. However, predictability is positively correlated with the Hurst exponent. |
| Keywords: | 89 65 Gh 05 45 Tp 89 65 -s |
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